Skip to content

Commercial Awareness: The background to good contracts

June 18, 2012

Last week, I wrote a short post about an IACCM member question on ‘what are the things everyone in our organization should be aware of?’ This is a topic of growing interest in many organizations, as they wrestle with how to better manage risk. As sources of complexity grow (as well as the consequences of getting them wrong), they have to find more streamlined and practical ways to undertake risk assessment and management. Simply adding more and more lawyers or commercial staff is not the answer. Many are therefore seeking to raise wider awareness across the organization, to ensure that all staff understand their responsibility to protect the company and to improve the quality of decision making.

Following a number of discussions, here is the list that we developed, based on topics about which there whould be wide awareness at different phases of the contracting process. Thanks to those who contributed – and please continue to add ideas or expand on the details behind these by sharing your comments:

Initiate

Alignment with business strategy (is this opportunity consistent with what we want to do?)

Probability of win (could be overall, or from individual perspective)

Nature of required relationship (do we understand it and what it means?)

Do we want to trade with this organization? (reputational risk/ethics/market risk)

What is our history with this company, as a corporation (existing/past relationships) and also with this industry

Pursuit

Possible regulatory issues

Non-standard requirements

Is solution robustly architected? (technical and business; based on needed information)

Clarity of scope and goals

Teaming / expertise needs (who needs to be involved for assessment and negotiation)

Do we control resources we are committing (or have authority to commit)?

Do we understand risks and have mitigation strategy?

Approval path

Governance – do we have approvals to make this offer/sign this contract/at this price/on these terms?

Internal alignment – is this a cross-division / cross-country deal? Which other business units may be impacted? What’s our account management strategy?

Service Management (implement / deliver)

Clarity: who does what?

Contract – interpretation and use

Change policies and procedures

Performance review procedures and contribution

KPIs – my role in delivery

Internal knowledge management: effective handover process from deal team to delivery team? Have we communicated the deal, it’s P&L, assumptions, dependencies, obligations and milestones, to all who need to know?

Completion

Don’t extend contract without approval / in error

Record lessons learned

Understand continuing obligations

Compliance requirements

Do we have an exit plan, with defined resources allocated and an exit project manager? Have we identified goals for the exit (we may want to do business with this customer again)

5 Comments
  1. Pablo Cilotta permalink

    It has been a great idea to develop such a list of things that every member of the organization involved in the contracting process should be aware of.

    Doing so and, therefore, clarifying from the beginning the scope of their responsibility, we will ensure that we can deliver results, keeping at the same time the business out of risk and trouble, which implies, as we know, the need for balance between “innovation” and “compliance”, idea that has been addressed and put forward by Tim Cummins in many of his recent articles in this blog.

    I would add here that if we take a general look at the proposed list, we will see that there is a crucial element on which much of the listed commercial awareness are based, and if we are to find this common denominator among all of them, I will say that I am referring to “alignment and compliance”.

    Indeed, we need to be aligned with business strategy at the very beginning of the process, in order to make sure that we will proceed according to our goals.

    Contract management teams must be also aligned with each product line and service area, being aware of the client needs. Involved throughout the entire product lifecycle, they must work closely with Sales, Marketing, Project Management, Finance and Operations. Alignment, again.

    Then, we have internal alignment (between divisions or business units), compliance to performance review procedures when the delivery or implementation takes places. Monitor transaction compliance and audits of the service level agreement performance. Compliance and alignment, again.

    And finally, compliance requirement related to the completion phase, to ensure contract close-out or renewal and/or extension.

    I strongly believe the list could be extensive, reflecting many other topics about which there must be awareness in this subject, but in the end, everything could be summed up in those words: “awareness about compliance and alignment”.

  2. Ian Heptinstall permalink

    Hi Tim,

    A good list of core contract awareness fundamentals, though I would take a slightly different slant where commercial awareness is concerned. I am not sure how they fall under the headings, but I would include behavioural topics such as….

    How sales processes work, the inherent tension between buying and selling, and the fundamental differences between competition and collaboration as approaches to managing your supply base. (I dont see one as superiour to the other – both have a place in business procurement. In complex categories I would expect collaboration to be more approriate)

    Tools and simple models which help to identify what generic approaches to procurement are approriate (eg Supply Positioning/Kraljic, Supplier Preferencing). Understanding why different categories should have different approaches taken.

    How to select and contract in a collaborative environment (in my experience most people are reasonably aware of competitive approaches)

    What the organisation’s minimum rules are – for process compliance, delegated authorities, expected behaviours & ethics rules, when and how “experts” are to be consulted, etc. More importantly, why they are there.

    I have experience of such awareness programmes, both as commissioner and deliverer, in several different organisations, and covering several thousand staff – mostly engineers. Such topics are really appreciated, and generate interest from even the most experienced engineer.

    Ian H

  3. Pablo Cilotta permalink

    Hi Tim,

    Once the importance of this topic was identified in this blog, we took it to the “Spanish speaking community” and discussed this matter in the “IACCM en español” forum https://www.iaccm.com/gp/espanol?section=forum&post=2404#post

    (BTW, for those interested in taking part and posting comments in our Spanish speaking community within our association -in particular those coming from Spain and Latin America- please go to https://www.iaccm.com/gp/espanol?section=forum, where you will find, among other resources, some translations into Spanish of articles published by Tim Cummins in this blog “Commitment Matters”, such as https://www.iaccm.com/gp/espanol?section=resources – We look forward to welcoming you there !)

    Going back to this specific matter, under the title “Listado de temas esenciales que debe conocer quien gestona contratos”, we took Tim’s thoughts into account, other comments posted there as well, and integrated the list, having agreed with Gilberto from Spain that although the final stage is not the most important one among the entire lifecycle contracting process, we need to recognize the relevance of the CM role when monitoring transaction compliance and auditing commitment execution..

    Indeed, it does fall under the CM’s competence, the key function to ensure contract close-out -its timely renewal or extension- and oversee compliance with SLAs, handling ongoing outstanding obligations and keeping contractual records and documentation / status reports and contractual change notifications.

    Those who are undertaking the IACCM Managed Learning Program, will have the opportunity to learn more about this subject and jump into specifics in its pertinent module (“Contract close-out and lessons learned”), which I strongly recommend.

    Pablo.-

Trackbacks & Pingbacks

  1. Empowerment & Control: Two Sides of the Same Coin « Commitment Matters

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: